Finland is just starting an experiment which has a lot of us economic types rather excited. Yes, I know, sad, isn't it, that we might get excited over something that seems so trivial. For what Finland is doing is testing out the core idea of a universal basic income. Instead of paying welfare benefits conditional upon circumstances, like being unemployed, or having too little an income, why not just pay people a set minimum? Not a huge amount, to be sure, but enough to just keep body and soul together. And make it unconditional. Doesn't matter whether you look for work, get a job, earn a high income, we just have a system whereby the very basics of life are guaranteed to be affordable.

This is being tested shortly by, I think, Give Directly, in East Africa, it has been tested in India, Y Combinator the start up lab company is hoping to run an experiment in the US, there's something at the city level in the Netherlands....it's one of those economic ideas that people are taking seriously at least. It all sounds great, indeed there were US and Canadian experiments in the 1970s. Up until now it has really failed on two matters, one being that it does have to be a basic income to be affordable, the second that there's fierce resistance just to giving money to everyone for doing nothing.

But what we're seeing in Finland now is the first large scale and national experiment of these modern times:

Finland has started a radical experiment: It's giving 2,000 citizens a guaranteed income, with funds that keep flowing whether participants work or not.

The program, which kicks off this month, is one of the first efforts to test a "universal basic income."

Finland has become the first country in Europe to pay its unemployed citizens a basic monthly income, amounting to 560 euros ($587), in a social experiment hoped to cut government red tape, reduce poverty and boost employment.

Recipients will not need to prove they are looking for work and the money will be given regardless of any other income the person earns.

The Finnish government is planning to study whether the policy helps recipients find work. It suspects many unemployed people are put off getting a job because they will lose unemployment benefits and therefore be worse off financially - a similar problem to that which tax credits were designed to solve in the UK.

So, policy wonks all excited as we test one of Milton Friedman's favourite ideas--yes, he liked this. He also realised that it wouldn't work in the 1950s America he then inhabited so it became instead a negative income tax. Also too expensive for the time so it became again the Earned Income Tax Credit instead--yes, the EITC derives from Milton Friedman.

And I'll admit that I'm interested--both in that the experiment is being done which is a nice change for policy ideas, to check they work, and also because I think it will work well. However, what I think will be a much more important lesson is that the Laffer Curve really works.

No, stop, it does not mean that all tax cuts pay for themselves. It just means that there are tax rates which, if you lower them, produce more revenue, just as there are other rates which if you raise them they produce more revenue. And one of the mechanisms by which this works is that at higher wages (and wages which attract lower taxes are indeed higher to the recipient) people will work more. This idea is generally thought of as applying only to rich people--I do not, I think that it applies to human beings.

Thus I look at the tax and benefit withdrawal rates faced by poor people. And in my native UK it is rather shocking. Income tax kicks in around about and near the levels at which income support is withdrawn. Thus there are millions of people who face marginal tax rates of 60%, some hundreds of thousands of over 80% and tens of thousands of unfortunates of more than 100%. It's unlikely that people will work more for only 20% of the extra wages, isn't it?

This is what the unconditional part of this trial gets around. You will indeed face a rising tax rate as more is earned. But not the benefit withdrawal rate at the same time meaning that the effective marginal tax rate is lower. Thus I expect more of those on this benefit to work more hours than those on the traditional benefit system. That is, I expect us to be able to prove that high marginal taxation rates are a disincentive to work for the poor just as much as they are for the rich. This is something I believe to be true right now but it would be nice to be able to wave the evidence around.

Just as an idea, a postulate you understand, I think that the peak of that Laffer Curve is around the 50 - 55% that the Saez and Diamond paper pegs it at for income tax. That's of all taxes upon income, meaning that it does equate to the tax and benefit withdrawal rate. Saez and Diamond have calculated it for the rich--my suggestion is that it's not going to be any higher than that for the poor. And this is what I hope we'll be able to prove from this experiment. The unconditional nature of the grant means that these 2,000 people will face lower marginal tax rates than other unemployed in Finland. Thus we will be able to study the effects of lower marginal tax rates upon the poor.